Davis Out of Aces?

Equities continue to remain buoyant as markets appear weary of last week’s central bank comments. Further gains here will most likely be limited by the uncertainty around the Fed’s tightening path, while the Bank of England’s surprise split regarding a rate hike will also offer some food for thought. While in the Eurozone, we also have Draghi with his hands under the rug seemingly poised to pull it from under the market too. Markets are again trying to second guess what central banks next moves will be, which in turn creates an apprehensive mood. That being said, we did see the German Dax and the Dow finish the week on record high levels, while both the Nasdaq and the FTSE 100 finished lower.

After what has felt like an eternity, Britain will finally begin their negotiations to leave the EU today. Brexit Secretary David Davis has pledged to deliver a “deal like no other” as he heads to Brussels for day one of negotiations. Such comments will no doubt fail to send any sort of chills down the EU negotiators backs, as we still await confirmation of the likely Tory-DUP coalition. It’s difficult to see how Davis can deliver on such a promise, as the wheels have already started to come apart from the chariot. The loss of a majority along with a fragile upper hierarchy, and it feels like Britain couldn’t be in a worse position to start these talks. This could all play into the hands of the EU, and we may well get a solution similar to an EU friendly model already in place. This should be positive for the pound in the long run as a soft Brexit in the past has been seen as positive for sterling.

Over in France where the new French President Emmanuel Macron, reinforced his position with a landslide victory for his new party in the second round of the latest parliamentary elections. The result saw the euro getting a boost against its peers initially, but has given up those gains up against its majors. EURUSD is now trading just below 1.12, where it continues to trade between 1.1120 and 1.13, we would need to see a break at either level to signal any further potential moves. EURGBP continues to remain supportive at .8720 while .8820 offers some resistance here. The pound however will no doubt be led by rumors coming from the negotiations and we may well see some further volatility as analysts gauge the winners and losers from the negotiations.

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